Glossary

Treasury Stock Method

The treasury stock method is the standard approach for calculating the dilutive effect of options and warrants on a company's diluted share count. It assumes that all in-the-money options and warrants are exercised, generating cash proceeds equal to the number of options exercised multiplied by their strike price, and that those proceeds are then used to repurchase shares at the current market price. Because the repurchase price is below the exercise proceeds' notional share equivalent only when the strike price is below market price, the method produces a net addition to shares outstanding that is smaller than the gross number of options exercised. The treasury stock method is the standard basis for diluted share count in an enterprise-to-equity value bridge.

Two-Stage DCF

A two-stage DCF is the simplest common multi-stage DCF structure, consisting of an explicit forecast period, typically five to ten years, during which growth and margin assumptions are modeled year by year, followed directly by a terminal value calculation that capitalizes cash flow into perpetuity at a stable, long-run growth rate. Unlike a three-stage DCF, a two-stage structure has no intermediate fade or transition stage bridging the explicit period's ending assumptions to the terminal assumptions. It is well suited to companies whose growth and margin profile is expected to normalize relatively quickly, or where a longer, more granular fade adds little analytical value.

Unlevered Beta (Asset Beta)

Unlevered beta, also called asset beta, is a company's observed (levered) beta adjusted to remove the effect of its financial leverage, leaving only the systematic risk attributable to the underlying business. Because an observed beta reflects both business risk and the financial risk added by a company's own capital structure, comparing levered betas directly across companies with different leverage is misleading. Unlevering allows betas from a set of comparable companies to be placed on a like-for-like basis, averaged, and then re-levered at the subject company's or project's target capital structure using the Hamada equation, producing a beta appropriate for the subject's own financing.

Unlevered DCF

An unlevered DCF is a DCF built around FCFF, unlevered free cash flow, which is the cash available to all capital providers — debt and equity holders combined — before any financing effects such as interest expense or debt repayment. Because FCFF is calculated independent of capital structure, it is discounted at WACC, the weighted average cost of capital, which blends the cost of debt and equity in proportion to the target capital structure. The present value of an unlevered DCF's forecast is enterprise value, which must then be bridged to equity value by deducting net debt and other adjustments. The unlevered approach is the most commonly used DCF structure in corporate valuation, since it does not require an explicit forecast of the company's future debt schedule.

Value-Based Care (VBC)

Value-based care (VBC) is a reimbursement approach that ties provider payment to measured patient outcomes and cost efficiency rather than to the volume of services delivered, in contrast to a traditional fee-for-service model where revenue scales directly with volume. Value-based arrangements range from upside-only shared savings, where a provider earns a bonus for beating a cost benchmark with no corresponding downside, to full capitation, where a provider accepts a fixed payment per patient regardless of the services actually delivered. Each structure shifts a different type and amount of financial risk onto the provider, and requires a materially different revenue and risk model than fee-for-service.

WACC (Weighted Average Cost of Capital)

WACC (Weighted Average Cost of Capital) is the rate of return that a company must earn on its existing assets to maintain the value of its equity and satisfy both its debt holders and equity investors. It is calculated as the weighted average of the after-tax cost of debt and the cost of equity, with the weights determined by the proportion of each in the total capital structure. WACC is used primarily as the discount rate in a discounted cash flow (DCF) valuation, where it converts projected free cash flows into present value. It is also used as a return hurdle: a project or investment is value-creating if its expected return exceeds the WACC.

Working Capital Schedule

A working capital schedule is the section of a financial model that calculates the period-by-period movements in a company's or project's net current assets — the difference between current assets (principally trade receivables) and current liabilities (principally trade payables and accrued liabilities). It translates revenue and cost accruals from the income statement into actual cash flows by capturing the timing difference between when economic activity is recognised and when cash is received or paid. Working capital is defined as: The working capital schedule calculates the change in net working capital in each period, which is a cash flow adjustment in the cash flow statement: - An increase in net working capital is a cash outflow (cash is being absorbed into receivables or inventory) - A decrease in net working capital is a cash inflow (cash is being released from payables or receivables)

Yield on Cost

Yield on cost expresses a development's projected stabilised net operating income as a percentage of its total development cost, a capital-efficiency metric distinct from market (exit) yield, which is measured against market value rather than cost. The spread between yield on cost and market exit yield is a standard development-viability test, since a positive spread indicates the completed asset's value should exceed its cost.